Special Report 78: Telecommunications 2017: Bank on competition!

Special Report pursuant to Sec. 121(2) of the German Telecommunications Act, Bonn, 4 December 2017

Public funding of the broadband expansion should only be provided in areas where expansion is not taking place through private enterprise. Funding programmes should be customised and supplemented by demand-side instruments.

Incentives for the commercial expansion of high-performance broadband networks should be enhanced by abandoning a strictly cost-oriented regulation of new fibre-optic networks.

When frequencies are allocated for the new fifth generation (5G) mobile communications standard the mobile network operators should be obligated to offer wholesale products on non-discriminatory terms.

The increasing digitalisation of the economy makes the swift expansion of gigabit-ready broadband infrastructures necessary. The greatest hurdle for more investment in modern broadband networks is the high costs of expanding them in combination with an as yet unpronounced demand for ultra-fast broadband connections. In addition, regulation in the telecommunications sector impacts the profitability of the investments and contributes to the restrained investing behaviour of the companies. In its Special Report released today, "Telecommunications 2017: Bank on competition!", the Monopolies Commission makes suggestions for a successful execution of a speedy and comprehensive expansion of high-performance land lines and mobile networks.

"The greater part of the necessary investments in gigabit infrastructures is made by commercial telecommunications firms in competition without public funding. The right conditions have to be created for this type of investment", states the Chair of the Monopolies Commission, Professor Achim Wambach. Deutsche Telekom, an operator with considerable market power, has until now been subject to a strict cost-oriented access and tariff regulation in broad areas of its operations. Whether and, if so, how newly built FTTB/H Networks will be regulated in future is currently being assessed by the Federal Network Agency (Bundesnetzagentur). The Monopolies Commission supports the plan of the regulatory agency to make the regulation of new networks more flexible and to tailor them to the special challenges of fibre-optic expansion. By departing from the strict cost-oriented regulation of access and tariffs, the profitability of risky investments can be improved and new incentives created for an expansion by private enterprise. Also, the potential inherent in collaborations in this expansion of broadband should be captured. If two or more firms share the costs of expanding the network, the risks of expansion decrease, because the prospective utilised capacity of the networks is optimised. If operators with strong market power participate in such co-investments, however, a (more flexible) regulation should not be cast aside. Otherwise there would be a risk of these firms eluding regulation by forming strategic alliances, to the detriment of competition.

In the regions where commercial broadband expansion is currently not profitable, the expansion of gigabit networks should be subsidised with public funds. The funding should be designed so that no crowding-out or devaluation of private investment occurs. The proposal of financing the expansion of new networks with exclusive expansion rights in the form of concessions must be rejected. The consequence of this would be a monopolisation of the regional infrastructure and the exclusion of private investments.

The classic supply-oriented funding should be supplemented by demand-oriented instruments. Thus short-term vouchers for broadband connections, so-called gigabit vouchers, could help to generate the demand that is vital for a commercial expansion.

In the field of mobile communications, the expansion of mobile networks of the fifth generation (5G) should be promoted by the Federal Network Agency making suitable frequencies available quickly. The allocation of frequencies should be tied to the obligation of offering providers without their own mobile network wholesale products on non-discriminatory terms. This is the only way to ensure that besides the three network operators the service providers as well will be able to offer innovative 5G services. For maintaining competition in mobile technology this is of utmost importance.

It remains necessary to divest without delay the shares of the German state in the Deutsche Telekom AG, which amount to almost 32 per cent. Selling the state’s holdings would put an end to its problematic double role as a regulator and shareholder.